[sjmyatt]

I have two accounts on my mac, one for me and one for my wife. We want
to share the 1 itunes library. If i rip a CD into itunes when im logged
in, then i want it to show up in her library when she logs in. I also just
want to store all our music in 1 location on our time capsule that we
can both access

[mdawson]

Fortunately for you, the solution to shared libraries is rather simple. Create a folder in system drive /Users/Shared in either of your user accounts; you only have to do this once. For your own reference the folder should be appropriately named (e.g., Shared iTunes Music). Now, in each of your accounts go into the General tab of the advanced section of iTunes Preferences and change the location of the iTunes music folder to the folder you just created in system drive /Users/Shared. If you have album cover art attached to any of your music files then you should also copy the Album Artwork folder in ~/Muisc/iTunes to the shared folder.
Once that is done, iTunes will recognize the music folder you created in the Shared folder as the location of your (actual) iTunes library (e.g., the media files), from both user accounts on your Mac. Any new music ripped from CDs or downloaded from the iTunes Store by either of you will automatically be put into that folder, so you will both always be able to access all of the music you currently have and later acquire.
I do not have this type of set up myself, but I believe that the only difference between your accounts in terms of the library will be in what appears in your source lists. That is, if you create a folder/playlist structure in your user account, it will not be reflected your wife’s user account. The reason for this is that while you are both sharing the same library, you are not sharing the same iTunes database indexing tables.
In you wish to share playlists you would need to copy the iTunes support files, iTunes Library and iTunes Music Library.xml, located in ~/Music/iTunes to the Shared folder also. Then each of you would need to re-launch iTunes on your individual accounts holding down the option key immediately after launching to access the Choose Library dialog box. From there you would select the iTunes Library file you copied to the Shared folder forcing iTunes to use that database table file instead of the one’s linked specifically to your accounts. Once that is done, any folders or playlists created or modified by either of you will appear in the source list on both accounts.